Homework Question on Corporate Governance and Finding the Best Buy
- Analyze the three internal governance mechanisms (ownership concentration, boards of directors, and executive compensation) and recommend a possible fourth mechanism that would help align the interests of managerial agents with those of the firm’s owners. Provide specific examples to support your response. Use the Internet to research basic approaches to corporate governance outside of the U.S. (excluding Germany, Japan, and China).
- Determine how U.S.-based corporations could incorporate elements of the corporate governance practices you researched to help top-level managers make better ethical decisions. Provide specific examples to support your response. Finding the Best Buy
- Corporate governance has become a hot issue in the U.S. over the past two decades. From your analysis of the case study, determine two possible corporate governance challenges that might be faced by Best Buy as a result of its rapid growth and why they could become corporate governance issues.
- Make recommendations for how Best Buy can overcome these challenges. Provide specific examples to support your response.
Homework Answer on Corporate Governance and Finding the Best Buy
Ownership concentration: the governance mechanism serves to protect the interest of large shareholders with more financial interest compared to small shareholders. Thus, larger shareholders are involved in most managerial decisions (Monks & Minow, 2011). For instance, institutional investors with large amounts of stock strictly monitor and punish managers receiving high compensation, yet performing poorly.
Board of directors: Comprise elected members that supervise managers and ensure the operations of the organization align with the owner’s interests (Monks & Minow, 2011). The structure of the board comprises top management, outside members related to the organization and outsiders members without links to the organization. The structure aligns the interests of the owner and the managers to the overall interest of the organization.
Executive compensation: the mechanism serves to align managers with owners’ interest by offering incentives, bonuses, and salaries based on managerial performance (Monks & Minow, 2011). Though it is difficult to apply the mechanism in many corporations, it is a viable way to protect the firm’s interest and ensure excellent performance from managers.